Category Archives: Brexit

The European leveraged finance markets have held up extremely well since the shock of the U.K. electorate’s vote to leave the EU, according to a report published on Monday by S&P Global Ratings entitled ‘Borrower-Friendly Credit Conditions Endure As The European Leveraged Finance Market Shrugs Off Brexit Uncertainty’.

The high-yield bond market has come back to life after a three-week closure due to the referendum, says S&P. Meanwhile, the result of the Brexit vote barely disrupted the leveraged loan market, and the shortage of new issuance so far in 2016 is even giving some private equity sponsors an opportunity to take dividends, S&P adds.

S&P says much of the resilience in the capital markets can be attributed to stimulus measures such as the European Central Bank’s (ECB) Corporate Sector Purchase Programme (CSPP), and will be aided further by the recently announced corporate bond asset purchase scheme (CBPS) from the Bank of England.

European CLO issuance topped €5 billion in July. That’s the most in one month during the ‘2.0 CLO’ era.

Credit conditions for borrowers became much friendlier in the second quarter of 2016, with an uptick in loan repricing transactions, according to S&P, and the agency expects the European leveraged finance loan and bond markets to remain favourable for borrowers since the need for new funding — driven by mergers and acquisitions (M&A) activity — remains lower than investor demand. This is largely the result of trade buyers continuing to dominate the M&A playing field, making it tough for private equity sponsors to compete with them on valuations and thereby reducing the need for new finance, the report adds.

S&P goes on to say that while borrowers have taken this opportunity to refinance expensive subordinated debt with cheaper senior secured issuance, the result has been an increase in the amount of senior leverage in loan-funded transactions. This move is reflected in the reduction S&P has observed in the percentage of deals with ‘6’ recovery ratings and an increase in those with ‘2’, ‘3’, and ‘4’ recovery ratings this year.

Improvements in borrowing conditions could result in a new wave of refinancings, repricings, and maturity extensions, but this could also enable private equity sponsors to achieve less-stringent transaction terms, S&P warns. Companies’ leverage could also increase, S&P says, and although overall debt-to-EBITDA multiples haven’t risen in 2016, senior leverage has continued to climb to its highest level since 2007.

However, rather than the borrower-friendly conditions extending to companies further down the credit scale, S&P predicts investors will remain focused on issuers’ credit quality, and will continue to push back selectively on terms they deem too generous or risky.

After three months of grinding higher, US leveraged loan mutual fund assets under management reversed course in June, contracting by $900 million, to $111.45 billion, according to LCD and Lipper.

There are two main reasons for the mild decline. Amid the Brexit-related volatility in the month, funds experienced modest outflows. Mutual funds that report weekly to Lipper FMI posted a net outflow of $582 million for the four weeks ended June 29. Most of the outflows occurred in the final week of the month, when these funds posted a net $525 million withdrawal.

This story first appeared onwww.lcdcomps.com, an offering ofS&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.

Deutsche Bank has priced an upsized €421.23 million CLO for Nordic asset management firm Accunia Credit Management, according to market sources. This is the first transaction to price since the Brexit vote last month, and Accunia is based in Denmark. The transaction, which is the first for the manager was upsized from €360.49 million.

The collateralized loan obligation transaction is structured as follows:

Of note, PGIM (Pramerica) is appointed as designated successor manager.

The settlement date is Aug. 4, 2016, and the transaction has a two-year non-call period, a four-year reinvestment period and a 13-year legal final maturity.

All the liabilities are set with 0% Euribor floors. The vehicle is currently roughly 44% ramped, with a three-month ramp-up period from closing.

Accunia intends to comply with European risk retention via a vertical strip as sponsor, while for Volcker, the transaction documentation includes language around manager-replacement rights, with separate voting, non-voting, and non-voting exchangeable tranches.

Including Accunia’s transaction, European CLO issuance rises to €7.63 billion from 19 CLOs, according to LCD, an offering of S&P Global Market Intelligence. This is the first CLO to price in July. — Sarah Husband

This story first appeared onwww.lcdcomps.com, an offering ofS&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.

Total return, excluding currency, for the ELLI fell 0.35% on Friday and dropped 0.38% on Monday, according to LCD.

Trailing only the Greek debt crisis of last summer, these movements mark the second- and third largest single-day declines since LCD started tracking daily returns three years ago. – Ruth Yang/Ruth McGavin

This story first appeared onwww.lcdcomps.com, an offering ofS&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.

United Kingdom high-yield credits were lower in a second-consecutive session since the Brexit-vote shock, and the U.S. followed suit again this morning, with pricing off 1–3 points across widely held credits. However, trading volume was once again fairly light, and there were mixed signals about cash flow, with both bid-wanted and offer-wanted circulars making the rounds, according to sources.

As for some of the big names trading, the Numericable 7.375% notes due 2026—at $5.19 billion the largest single tranche ever sold—this morning traded two points lower, at 95.75, for just over a four-point loss tied to Brexit adjustments, and the First Data 7% notes due 2023—at $3.4 billion the seventh-largest single issue—today has traded one point lower, at 99.5, for a net-three-point loss amid the rout.

Over in commodities, Chesapeake Energy 8% second-lien notes due 2022 were marked down at 82/84 this morning, according to sources, for nearly a six-point decline in recent days, while the Comstock Resources 10% first-lien notes due 2020 slumped three points, to 76.5/79.5, for approximately a five-point decline over the past week.

As for recent new issues, Dell 7.125% notes due 2024 shed another full point today, to 100.5/101, for roughly a three-point decline in recent days, while Weatherford International 7.75% notes due 2021 were down by another point as well, at 94.75/95.75, according to sources. Take note that both were originally issued at par three weeks ago.

In the synthetics market, the unfunded HY CDX 26 index slipped three-eighths of a point, to a 101.375 context. This is down 1.2% week-over-week and marks a three-month low dating to the twice-annual series rollover adjustment on March 28. — Matt Fuller

This story first appeared onwww.lcdcomps.com, an offering ofS&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.